Mutual Fund Pricing

There are definitive rules for the pricing of a mutual fund's shares. The two factors that play into the pricing of a mutual fund share as well as sales charges are net asset value and public offering price. Knowing how each of these impact a mutual fund's price is good to know when comparing investments and making informed decisions.

Net Asset Value (NAV) is the current value of one mutual fund share and is computed the following way: Market Value of the Funds Portfolio / Outstanding Shares = NAV

At the end of every trading day the NAV of every fund is computed, so the NAV of any particular fund can change on a daily basis. The NAV will change daily because the assets within the fund's portfolio will fluctuate in value with the market. Two types of funds exist- no load fund and load fund; Load refers to sales charge. So a no load fund will not charge a sales charge, and the NAV is the price that investors pay for a share. A load fund will charge a sales charge, and investors will pay the Public Offering Price which is computed by adding the NAV and sales charge together.

Public Offering Price (POP) is the price that investors pay for a load fund and includes the sales charge and NAV. Sales charges are expressed as a percentage, and the maximum sales charge allowed is 8.5%. If a mutual fund company wanted to charge the maximum sales charge of 8.5% they would ask themselves what sales charge would be added to the NAV so that the NAV equals 91.5% of the Public Offering Price. An example of how mutual fund companies compute a POP is helpful in uncovering this process.

Ex. A mutual fund's current bid price is $20.00 and the ask price is $21.86 per share. The bid price represents the NAV and the ask price represents the POP. To find the current sales charge, subtract the NAV from the POP price. (21.86 - 20 = 1.86). Then evaluate at what percentage does the sales charge represent of the POP. This is calculated by dividing the sales charge of $1.86 by the POP of $21.86 (1.86 / 21.86 = 8.5%).

Most mutual funds will provide cheaper pricing models for investors willing to purchase more shares; this is called a breakpoint. Some mutual funds also offer investors the option of a letter of discount. This offers a lower price when investors intend to purchase more shares in the future.


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